Dear Minister Phillips: On…

Dear Minister Phillips:

On Sunday October 7th 2018 the United Nation’s Intergovernmental Panel on Climate Change (IPCC) released a special report. In that report the IPCC states that containing global warming to a 1.5 C increase will be necessary to avoid increases in “heatwaves and hot extremes in most inhabited regions, heavy precipitation in several regions, and droughts in some regions”. It goes on to state that to avoid an increase to 1.5 C the world will need to cut emissions by half before 2030 and become carbon-neutral by 2050.

On this same weekend the 2018 Nobel Memorial Prize in Economic Sciences was awarded to William D. Nordhaus and Paul M. Romer - Nordhaus for his work in integrating science and economics to assess the costs of climate change to society and using markets to mitigate greenhouse gas emissions, and Romer for pointing out that public policy has a role in driving innovation.

In commenting on his receipt of the Nobel prize Romer made a comment that is directly relevant to Bill 4 and the opportunity to develop a new roadmap to reduce greenhouse gases in Ontario, "People think protecting the environment will be so costly and so hard that they want to ignore the problem and pretend it doesn’t exist," adding, "Once we start to try to reduce carbon emissions, we’ll be surprised that it wasn’t as hard as we anticipated."

Unilever shares Dr. Romer’s belief in innovation and his observation that knowledge can function as a driver of long-term economic growth.

As a global company operating in nearly 120 countries, Unilever recognizes that we are contributing to the challenges before us. Yet we are resolute in our intent to bring forward impactful solutions. To that end, we have pledged that the company will be carbon positive in our operations by 2030 assuming all of our total energy from renewable source by 2030. Moreover, we have committed to the markets that all packaging will be recyclable, reusable or compostable by 2025.

Yet this deals with only part of the life cycle of our product offerings. Our consumers need us to do more and to help them in a meaningful way contribute to a cleaner environment and lower GHG emissions for all.

Consequently, we see Bill 4’s requirement for the Minister to develop a climate change plan presents an opportunity to use focused public policy to harness market forces to drive economic development and innovation that will make Ontario’s industrial sector more competitive through efforts to reduce greenhouse gases.

Bill 4 and Ontario and Climate Change Plan

In any market economy price is a key signal that changes market behaviour. A surplus of something beyond what the market demands causes prices to drop while scarcity drives them up. Where an undesired by-product of a market economy – say greenhouse gases – is free (unpriced), the production and emission of that undesired by-product goes up.

While a taxation can be used to put a “price on carbon” there are other policy tools and options that not only have the same pricing effect but that more directly drive incentives for innovation and economic growth in a competitive market economy.

Performance-based regulation

One of the policy tools available to regulators is performance-based regulation (PBR). PBR specifies required outcomes or objectives, rather than the means by which they must be achieved. Here persons subject to regulation can choose a myriad of market strategies to reduce pollution. PBR regulations can also be designed to reward those that exceed set performance standards with the ability to turn superior performance into a competitive advantage.

Consider an Ontario steel producer whose products have life-cycle greenhouse gas intensities that are relatively low as compared to other steel producers worldwide. By setting a greenhouse gas carbon intensity performance standard (expressed as kg CO2e/tonne of steel produced) that applies to all steel producers (both domestic and foreign), Ontario steel producers that produce “cleaner” steel can be competitively rewarded. That is, by setting penalties on steel that is more carbon intense that the performance standard, Ontario’s cleaner steel producers will be more price competitive in supplying less carbon intense steel to Ontario builders and product manufacturers.

By tightening the standard over time, Ontario steel producers will have an incentive to innovate and invest in order to further reduce greenhouse gas emissions without the fear that they will lose market-share to foreign suppliers of steel made with lower environmental and health and safety standards.

PBR has a powerful role to play in improving the resource efficiency and reducing greenhouse gases in the consumer products sector especially with regard to the development of “circular economies”. Circular economies offer the opportunity to not only improve environmental performance but also the competitiveness of producers such as Unilever and their ability to deliver greater value to consumers with their products.

Consumer products – ranging from automobiles to food products - and packaging supplied by both domestic and imported suppliers account for about 44% of the greenhouse gases generated in the United States. Canada’s product and packaging intensity is similar.

Now consider the current recovery and recycling of packaging in Ontario today. Over the period 2011-2016 Ontario’s overall diversion rate for all residential paper products and packaging through Ontario’s blue box has remained flat at just over 60%.

The reason for this low performance is that there is no provincial system of recycling – under current regulation each Ontario municipality runs its own recycling system with little or no coordination with other municipal recycling systems and with no connection to the producers whose packaging they manage . As such, each municipality is left to address the changing packaging mix and commodity market realities (such as the closure of the Chinese market to Canadian recyclable materials) within its own system. The result of this fragmentation is both ineffective and inefficient.

The material that is not collected and disposed of incurs a huge opportunity cost in terms of increased greenhouse gas emissions, wasted resources and forgone economic development and jobs in Ontario’s recycling industry. Consider that for every tonne of typical plastic recycled back into plastic products or packaging there is a 2 metric tonne reduction in greenhouse gases over its disposal through energy from waste – a potential opportunity to reduce plastics related greenhouse gases by almost 2 million metric tonnes in Ontario annually.

A performance-based regulation that requires all producers supplying paper products and packaging into Ontario to deliver residential recycling in order to meet set recycling targets would both transfer the obligation for residential recycling from municipalities to producers and completely transform the effectiveness of recycling of paper products and packaging in Ontario. Consider that the recycling rate for paper products and packaging is 75% in British Columbia where a similar “extended producer responsibility” policy is applied.

BC’s EPR policy for paper products and packaging has enabled producers to build reverse supply-chains that close the loop between the production, distribution and sale of products and packaging and the recovery of those products and packaging for reuse and recycling. Producers are responsible for the design of products and selection of packaging and are thus best able to tailor reverse supply chains to ensure the materials in those products and packaging is used in subsequent production cycles.

In developing a climate change plan for Ontario the Ontario Government should consider the role of performance-based regulation such as EPR and should focus its efforts on ensuring such policies both reduce greenhouse gases but also drive competitiveness.

This is a time of opportunity and renewal, a time for bold and innovation thinking for all Ontarians. Unilever stands ready to assist the Ontario Government.

Yours truly,
John Coyne
Vice President, Legal & External Affairs
Unilever, Canada